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Nation Automotive Policy Framework

Nowadays, the automotive industry has become the major industry in the Malaysian economy. Malaysia automotive sector started at the incorporation of Proton (Perusahaan Otomobil Sdn. Bhd.) in year 1985 and consequently Perodua (Perusahaan Otomobil Kedua Sdn. Bhd.) in year 1993. The domestic market is essentially a duopoly controlled by these two dominant national car manufacturers.

1.1 Overview of Merger Strategy More and more countries around the world are taking the approach of consolidation to increase the competitive advantages. The global automobile industry has seen significant consolidation over the last few decades. A lot of the corporations have found it beneficial to join hands with some of their former competitors. In the other word, this consolidation is the result of increased their competition strength, create a win-win situation to distribute the market share together. On the other hand, consolidation intensifies competition as the emerging groups are highly research intensive (Aamir and Johannes, 2007).

Aamir and Johannes (2007) stated that if the industry is not very concentrated, some consolidation may increase the innovative activity. However, if the industry is already concentrated, further consolidation may reduce the innovation incentives. Beside that, mergers reduce the values of merging firms though they may increase the aggregate values of

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the industry. Other than that, mergers between giant firms may reduce consumers’ utility. However, they make rivals by reducing their extent of competition in the market. The overall effect of mergers on aggregate industry value is positive if merging firms are large in size.

2.0 Feasible of Merging Between Proton and Perodua 2.1 Strategy Formulation – Corporate Strategy Generally, corporate strategy is primarily about the choice of direction for a firm as a whole which including determines and reveals its objectives, mission, vision, produce principal policies and plans for achieving goals, and defines the range of business the company is to pursue, the kind of economic and human organisation it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities.

In fact, corporate strategy consists of directional strategy, portfolio strategy and parenting strategy. The directional strategy involved overall orientation towards growth, stability and retrenchment. The portfolio strategy is involving markets that the firm competes in through products lines and business units, and parenting strategy involving coordination and transfer of resources between product line and business units. In orientation toward growth, there are two basic form, either is concentration or diversification. It also incorporates for internal growth or external growth. A merger is considering as external growth and it is commonly used increase the competitive advantage.

2.1.1 Merger Objectives According to the Nation Automotive Policy Framework (2005), Proton and Perodua have big encouraging in merging. The policies that encouraging Proton and Perodua merger including the followings:- 1. To enhance value added and local capabilities in the automotive sector. 2. To become a regional hub for manufacturing, assembly and distribution for automotive vehicles. 3. To promote a competitive and viable automotive sector, in particular national car manufacturers. 4. To promote export-oriented Malaysian manufacturers as well as component and parts vendors.

As a conclusion, the policies’ objectives are to create national automotive manufacturers have more competitiveness advantage to compete with non-national automotive assemblers and manufacturing company in domestic market while export and introduce the national brand to the global market. Initially, the feasibility of merge starts from evaluation of corporate strategy for both company especially on the aspect of mission and vision, the company’s future business plans and the direction in the near future. The strategic roadmap shall including future product designation, advance technology, and customer segmentation, geographical distribution and capabilities to research and develop. The role of the management will include creating an action plan for the near future, targeting future business position, deciding short, medium and long term direction and ensure the new company has a strong identify.

2.2 Business Level: Business Strategy Analysis 2.2.1 Proton Holdings Bhd Effective from 1 January 2009, Proton’s chairman Datuk Mohd Nadzmi Salleh has identified that product planning as a major task for him in leading Proton’s direction locally and internationally. The product planning determined a long term period and a short to medium term goals in order to achieve any annual target. The strategy covers to make the right car models as well as their marketplace and replacement cycle. This strategy will enable Proton to maintain its competitiveness in the future (Hatipah Ahmad, 2009).

The product strategy “The right car for the right market” implemented with the Saga and Persona. Anyway, by implemented strategy so far is cannot work alone to survive the tougher global automotive landscape amid slowing growth, changing demand to smaller and more fuel efficient vehicles, volatile currency rates and pressure on margins. Therefore, Proton will continue extended their product strategy to form non-equity alliances with other carmakers in areas like product development and completely knocked down operations. (Mahanum, 2008).

2.2.2 Perodua Perusahaan Otomobil Kedua Sdn Bhd (Perodua) has always been Malaysia’s leading compact car market and expects to continue its strategy of selling fuel efficient, compact cars to continue driving its growth. Perodua’s product strategy is based on their brand statement “Building Cars, People First”. According to Perodua marketing strategy is targeting the first-time buyers and also the additional car segment. Based on previous years sales, first-time buyers comprising fresh graduates, has accounted for 30 to 35 percent of Perodua’s total sales. While for the additional car segment was made up about 40 percent of their sales (Eugene, 2008).

The reason behind the good sales mainly contributed by the people want a car that is affordable and fuel efficient. Perodua had poor sales of the segments of replacement car category due to the stringent in granting loans from banks. Perodua’s product strategy is always referring to the Product Life Cycle (PLC). Perodua believe that the markets are not ready to embrace compact cars in a big way. Hence they will continue to target to be the leader in the domestic market before expanding globally (Frost & Sullivan, 2007).

As at the Human Resource section, Perodua is tries to identify high potential employees and create an attractive value proposition for them; cultivate an integrated talent development mind-set among line managers; create a talent pool to meet future leadership needs; and institutionalise “pay for performance” culture. Perodua also provide different types of support and encouragement to different levels of executives to develop their potential in creative thinking (Rikza, 2008).

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